2014 (12) TMI 1244 - AT - Income Tax

Revision u/s. 263 - taxability of the amount received by the assessee on retirement from the partnership firm - Assessing Officer accepted the contention that the amount received was not taxable - Held that - Assessing Officer conducted an enquiry on the issue of taxability the amount received by the assessee on retirement from these two partnership firms and examined the deed of retirement and reconstitution as well as the submissions of the assessee. It is manifest from the notice issued u/s 142(1) along with questionnaire, reply furnished by the assessee along with the relevant documents on the point that the Assessing Officer has examined the issue and then accepted the claim of the assessee. Therefore, it is not a case of lack of enquiry. Even the CIT has also not alleged that the Assessing Officer has not conducted any enquiry. Once the case does not fall under the category of lack of enquiry then the revisionary powers u/s 263 can be invoked by the CIT only when the claim of assessee allowed by the Assessing Officer is impermissible under law. It is settled legal proposition of law that if two views are possible on an issue and Assessing Officer has taken one of the possible views then the Commissioner has no jurisdiction to revise the order of Assessing Officer on the ground that he did not agree with the view taken by the Assessing Officer. As decided in Tribhuvandas G. Patel Versus Commissioner of Income-Tax 1996 (2) TMI 16 - SUPREME Court even where a partner retires and some amount is paid to him towards his share in the assets, it should be treated as falling under clause (ii) of section 47. The view taken by the Assessing Officer on this question of taxability of the amount received by the assessee on retirement from the partnership firm is certainly not an impermissible or impossible view rather the view taken by the Assessing Officer is a proper and more logical view as it is fortified by the series of decisions of Hon ble Supreme Court, Hon ble High Court as well as of this Tribunal. There is no quarrel on the point that if the Assessing Officer has failed to apply his mind and taken a view which is not permissible under the law then the order will be considered as erroneous so far as prejudicial to the interest of revenue. However, when the Assessing Officer has conducted an enquiry and taken a possible and rather a proper view then the Commissioner is not permitted to exercise the revisionary powers u/s 263 merely on the ground that he does not agree with the view taken by the Assessing Officer or even on the ground that there are divergent view on the issue. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the revision orders passed under section 263 of the Income Tax Act.
2. Taxability of the amount received by the assessee on retirement from partnership firms as short-term capital gain.

Detailed Analysis:

1. Validity of the Revision Orders Passed Under Section 263:
The appeals were directed against the revision orders of the Commissioner of Income Tax (CIT) passed under section 263 of the Income Tax Act. The CIT invoked section 263 on the grounds that the assessment orders were erroneous and prejudicial to the interest of revenue. The CIT argued that the Assessing Officer (AO) failed to appreciate the facts correctly and did not tax the amount received by the assessee on retirement from the partnership firms.

The Tribunal found that the AO had conducted a proper enquiry into the issue. The AO had issued a notice under section 142(1) and raised specific queries regarding the compensation received by the assessee, which were duly addressed by the assessee. The AO accepted the assessee's claim that the amount received on retirement was not taxable, based on relevant judicial precedents.

The Tribunal emphasized that if the AO has taken one of the possible views after conducting a proper enquiry, the CIT cannot invoke section 263 merely because he disagrees with the AO's view. The Tribunal cited various judicial decisions, including the Supreme Court's ruling in Malabar Industrial Co. Ltd. vs. CIT, which held that an order cannot be revised under section 263 if the AO has taken a possible view.

2. Taxability of the Amount Received by the Assessee on Retirement from Partnership Firms:
The CIT treated the amount received by the assessee on retirement from the partnership firms as short-term capital gain, arguing that it was a lumpsum consideration for the transfer of the assessee's rights in the capital assets of the firms to the continuing partners.

The Tribunal examined the deeds of retirement and reconstitution and found that the amounts were received by the assessee due to the revaluation of assets of the firms, which were credited to the capital reserves and claimed as non-taxable. The Tribunal referred to several judicial precedents, including the Supreme Court's decisions in CIT vs. Mohanbhai Pamabhai and CIT vs. R. Lingmallu Raghukumar, which held that the amount received by a retiring partner is not taxable as capital gain.

The Tribunal noted that the CIT relied on outdated judgments that were overruled by the Supreme Court. The Tribunal also highlighted that the issue of taxability of the amount received on retirement is debatable, and when two views are possible, the AO's view cannot be considered erroneous.

Conclusion:
The Tribunal concluded that the AO had conducted a proper enquiry and taken a possible view supported by judicial precedents. Therefore, the CIT exceeded his jurisdiction under section 263. The revision orders were quashed, and the appeals of the assessee were allowed. The Tribunal's decision emphasized the principle that revisionary powers under section 263 cannot be invoked merely based on a difference of opinion when the AO's view is a plausible one.